As we reported yesterday, Metrolinx has released its Investment Strategy [PDF], a set of recommendations about how to pay for transit and road improvements in the Greater Toronto and Hamilton Area (GTHA). Those recommendations: increase the HST by one per cent; implement a levy on non-residential, off-street parking; increase the fuel tax by five cents; and increase development charges by 15 per cent.

Is this a good proposal, and will it get anywhere?

This History: Waiting For a Strategy

Back in June 2007, then-Premier Dalton McGuinty announced MoveOntario 2020 with a list of 52 projects cobbled together from regional and GO Transit plans. The estimated cost, about $16 billion, would be shared between two thirds from Queen’s Park and a hoped-for one third from Ottawa.

The agency now known as Metrolinx was given the job of finalizing a plan, which became known as The Big Move, and was formally adopted in November 2008. By then, the estimated cost had climbed to $50 billion (with even higher numbers in draft versions of the plan); $2 billion was established as the annual target for funding. Today, Metrolinx still talks about that $2 billion, but now that’s only expected to cover a handful of projects from the original list, plus a 25 per cent diversion to municipal governments to help with smaller-bore, local transit needs.

Even before The Big Move was published, an Investment Strategy Update [PDF] was presented to the Metrolinx Board. Little in that document is surprising, and most of the major revenue sources being proposed now—the sales tax, fuel tax, and parking levy—were on the 2008 list. That update also included projections of the funding needed annually for various network concepts then under development (page 7), ranging from an extra $2 billion to $6.2 billion.

The much higher-than-anticipated cost of transit investments, coupled with the banking crisis of late 2008, changed everything. A government once committed to a massive transit network struggled to afford just the first phase of projects, whose cost had ballooned to the originally announced value of the entire program.

The scope and timing of projects, notably Toronto’s Transit City lines, were adjusted. Routes that were originally slated for near-completion in 2013 were dispatched to the end of the decade. Outer portions of routes (Eglinton and Finch LRTs to the airport, Sheppard LRT to University of Toronto’s Scarborough Campus, a Scarborough LRT to Malvern) were sacrificed to a still-unfunded second phase.

If it were not for the legislated requirement that Metrolinx produce an Investment Strategy by June 1, 2013, Queen’s Park might still be bumbling along avoiding significant, long-term commitment to solving regional transit woes.

The Primary Tools

Metrolinx proposes four primary and three secondary funding tools. The primary tools are:

Harmonized Sales Tax (1 per cent increase)
This tax does the bulk of the work funding transit projects and operations, with projected new revenue of $1.3 billion being raised annually in the GTHA. (It will actually raise a little more than that: Metrolinx’s plan includes a $100 million allowance for a means-tested “mobility tax credit.” This would be similar to the sales tax credit now available to those with low or no income.)

If the tax is applied province-wide—easier to manage legislatively—an additional $1.7 billion will be available, raised from the rest of the province, to fund transportation projects outside of the GTHA. Because this territory is beyond Metrolinx’s planning area, no work has been done on how this revenue might be managed or allocated.

Business Parking Levy
A tax on non-residential parking would be levied throughout the GTHA on a sliding scale based on property values. In effect, parking would become a new land use for taxation purposes. This tax, averaging 25 cents per space per day, would bring in $350 million.

Fuel and Gasoline Tax (5 cents per litre)
This tax would produce $330 million, though that figure could be affected by future changes in driving habits and fuel economy. Any revenue would be in addition to the current dedicated fuel tax transfer to municipalities.

Development Charges (15% increase)
Across the GTHA, development charges are applied to new construction, to cover the cost of supporting infrastructure municipalities must provide. Assuming that building continues at current rates, this would yield an additional $100 million in revenue.

Funds raised by all the new taxes would be put in a dedicated transportation trust fund, one that would be administered by a board separate from Metrolinx. This would, says Metrolinx, ensure accountability and transparency, demonstrating to a skeptical public that new transit is indeed being funded with the new revenue tools.

The Secondary Tools

The secondary tools are not included in the fundraising totals—they don’t count immediately towards the $2 billion a year we need to raise. They are recommended as policies to consider not because they would raise a lot of money but but because they are intended to influence behaviour, whether this be by commuting motorists or by landowners who benefit from public investments in transit.

High Occupancy Toll Lanes (HOT)
A High Occupancy Vehicle (HOV) lane is one set aside for vehicles with multiple passengers. High Occupancy Toll (HOT) lanes extend this scheme by giving solo drivers, who are also able to use the lane if they pay a toll. This concept is popular in some circles, but dubbed “Lexus Lanes” by others, as it confers a benefit only for those willing and able to pay.

The real problem with the HOT concept is its assumption that there is surplus, unused capacity in the HOV lane available for sale. Traffic that would otherwise be in the free lanes is shifted to the allegedly emptier HOT lane. This is completely contrary to the principle that HOV lanes are intended to encourage shared use and thereby to increase overall road capacity.

If a road is full today, changing one lane to a tolled HOT lane will not create capacity out of thin air. If anything, the HOV lane should demonstrate a lower congestion level than the free highway in order to attract the desired car-pooling behaviour.

In a worst case scenario, this could be a highway expansion plan in disguise, if the HOV/HOT lane cannot be carved out of existing space. Implementing any tolling scheme also requires substantial capital outlay for vehicle and passenger monitoring. The gross revenue varies depending on the scale of the HOV/HOT network, and it is unclear how much would remain available for other transportation improvements.

Paid Parking
GO Transit’s expansion is historically rooted in provision of parking at stations. With the shift from large surface lots to parking structures, the cost of providing parking has grown, but GO’s model continues to encourage commuters to drive to the transit station. This approach is limited both by parking capacity and traffic congestion at stations. Also, parking may not be the best land use at locations that will become local development nodes. Parking—intrinsically designed for peak commuting to downtown—is of little use for all-day, two-way demand.

Charging for parking could generate $20–40 million annually, although this will certainly annoy GO customers, just as it has TTC riders who lost the free parking once available with the Metropass. The real challenge for Metrolinx should be to simply stop building more spaces, not to find ways to reduce their cost through new revenues.

Land Value Capture
The premise of this tool is that transit investments make land more valuable, and this value should somehow help to pay back the investment that made it possible. However, the definition of what “value” should be taxed and how this might be calculated remains a mystery.

A fundamental problem is that development does not necessarily follow construction quickly. Examples on the existing TTC and GO rail networks abound. The value of a rapid transit line is enjoyed not just by the immediate properties, but by the transformation of access in general (be it by car or feeder bus) when a line opens up new territory or major service improvements change a route’s convenience and attractiveness.

Should land be taxed just because a new station pops up, or should the tax await development? What is the catchment area for a new tax? This and other related questions have not been answered, but Metrolinx recommends working with municipalities and the development industry to develop a “land value capture strategy”.

Which Tools Will Be Used, and How?

The Investment Strategy, formally, is only advice Metrolinx is offering Queen’s Park. The ink was barely dry on the report when Transportation Minister Glen Murray took to the airwaves, mentioning the many other revenue suggestions he had received. He suggested that the mix of new taxes, indeed the entire Metrolinx proposal, was still very much in play, saying that the “Metrolinx contribution is significant, but it is just one of many voices the government will be listening to over the summer.” (This is from an interview on CBC radio’s Here & Now; see the second of the two clips at that link.)

Via a press release [PDF], Murray also announced that the government will strike a review committee over the summer of 2013 to consider the Metrolinx report and manage outreach to municipal politicians and citizens. In effect, the Metrolinx work will be rehashed to put a ministerial stamp on its conclusions.

In the lead-up to Metrolinx’s announcement, through public consultations, third-party advocacy, and media reports, the emphasis has been on which taxes would be used to generate $2 billion per year. What is missing is any detailed plan for actually spending the money. All we have right now is a list of projects with no delivery dates, nor any estimate of the benefits they will bring.

Both opposition parties have rejected new taxes to fund transit expansion. Metrolinx, as a non-political agency, did not examine any potential reallocation of government finances through revisions of corporate tax structures—an NDP demand—nor the spending cuts demanded by the Tories. Alternate agendas both in government and opposition will make any speedy resolution to the transit funding question unlikely.

By late 2013, the government must make up its mind and either bring forward enabling legislation for new taxes, or at least build an agreed-upon set of proposals into the 2014 provincial budget plans. There is little time for more dithering and second-guessing of an already extended research and consultation process.

Is $2 Billion Enough?

Experience with The Big Move and with transit projects generally tells us that cost estimates don’t stay fixed for long.

Metrolinx now quotes its “Next Wave” projects in 2014 dollars, but will build them years in the future with unknown inflationary effects thanks to economic changes in labour, materials, and financing, not to mention changing capacity in the construction industry.

Add to this the need to pay for operating new lines as they open—a question that remains unresolved. The faster Metrolinx expands GO service, the sooner it must bear the cost of running that service and maintaining new infrastructure.

Local transit will also need to be improved to provide access to the regional network. Simple changes like running GO trains every 30 minutes rather than hourly have profound implications for infrequent, off-peak transit service and the cost to local municipalities.

The Challenge of “Local Funding”

Twenty-five percent of the new revenue, or $500 million a year, will be shunted to municipalities for their local transportation goals—that is, dedicated to projects outside of The Big Move network itself.

Fifteen per cent ($300 million a year) will go toward local transportation improvements (road or transit) that are intended to increase transit ridership or road capacity. Municipalities will have to provide matching funds, but this must be net new money, not simply a reallocation of existing spending. Metrolinx sees this as a funding source for increased transit service, but it is unclear how long such improvements would be eligible as a stimulus for new riding. Operating subsidies are a continuing cost, and they could be crowded out by one-time capital spending.

Five per cent ($100 million a year) will go to investments in the controlled access highway network (like 400-series highways).

Five per cent ($100 million a year) will go to a mixed bag of active transportation (cycling and pedestrian) improvements, fare systems, and other leftovers in the plan.

Critical aspects of local service and fare integration—a challenge needing much more than a shared PRESTO smartcard—will not be addressed until mid-2014. The substantial cost of improved local transit service is lumped into a funding pool with many other demands, including road expansion, and there is no sense that the magnitude of spending required has been matched against the proposed funding.

For years Metrolinx has been preoccupied with a network of large-scale projects and has dismissed local needs as somebody else’s problem. Now they have discovered the “last mile”: the portion of a commuter’s trip between a regional service and a home or work destination. (Think about taking the bus from the nearest subway station to your home.) Coupled with a commitment to providing regional service and fare integration, local transit is a major concern in its own right. Metrolinx’s work in this vital area is threadbare, a condition that will not be easily remedied given the disparity of goals and priorities for each municipal transit agency.

A further problem lies in the definition of what counts as a “regional” project and, hence, one that would be funded as a Metrolinx undertaking, not as a local scheme. If Metrolinx includes a project in The Big Move, it gets full provincial funding, but the municipality loses control. One example is the proposed LRT/streetcar network on the Toronto waterfront touted by Glen Murray as a high priority, even though it’s not part of the Metrolinx scheme. Completing all components, including expansion of Union Station Loop, construction of new trackage through the East Bayfront, West Donlands and Port Lands, and associated street realignments, has a cost comparable to some Big Move projects. If this must come out of the “local funding” pot, it will elbow aside any other operating or capital proposals for several years.

Many GO improvements (two-way all-day service throughout the network and electrification of the Lake Shore and Kitchener corridors).

According to Metrolinx president Bruce McCuaig, the board members were quite insistent that the new revenues be dedicated to specific projects, and that there be a review mechanism to discuss whether to change or discontinue the new taxes and levies once their initial purpose is achieved.

Additional funding from Ottawa could speed up work on the Next Wave projects, or it could free up capital to add new projects to this group. Until such money appears, if ever, all of the unfunded projects that are supposed to come after the Next Wave, including Transit City Phase 2 and other pieces of The Big Move, are in funding limbo.

When Will We Build?

One major open question is the financing strategy that will support all of this. Metrolinx has not, as yet, provided a clear recommendation: do we build $2 billion a year worth of transit, as the money comes in, or use the new revenue tools to underwrite borrowing a much larger sum (against the future revenue the taxes would bring in) to facilitate faster construction?

Each approach may be appropriate for different types of projects. For example, a large subway such as the Relief Line (now shorn of its “Downtown” moniker) would soak up all available funding if it were built only with current revenues. The scope, length and lifespan of the investment would be more suitable for debt financing. Much smaller projects could be built directly with in-year tax revenues, by contrast.

In its report, Metrolinx included estimates for how long it would take to design, conduct an environmental assessment, and construct each Next Wave project:

Some of these timeframes, notably the electrification of GO service on the Lake Shore and Kitchener lines, are very long, and their contribution to reducing travel times will not be felt for at least a decade. Can all of these be undertaken at once, or will the process be drawn out by Metrolinx limitations on concurrency in its staging plan, due in June 2014?

The Next Wave will not move speedily. It may consume 15 years worth of new revenue, but the GTHA could wait much longer to see meaningful results.

Metrolinx Governance

As part of its recommendations, Metrolinx is proposing that its board grow from twelve to eighteen members, with the additional six being appointed by the municipalities to represent their interests. How this would be achieved is unclear given the complexity of a region-wide recruitment process. Equally, it could be argued that Queen’s Park should give up some of its existing seats on the board to keep its size manageable. When everyone wants to speak, even a twelve-member board can chew up a lot of time.

The projects now approved in the Metrolinx Base Program and Next Wave represent a spending breakdown roughly proportionate to the population in the “416” and the “905” areas. This coarse grouping will not likely survive examination at a finer level at the individual municipalities. Some areas may still feel “left out” and this could affect broad acceptance of the plans. The worst possible scenario would be a board that gerrymandered The Big Move to suit pet projects rather than fairly-applied regional objectives and criteria.

Selling the Plan

Metrolinx and Queen’s Park face a considerable political challenge in convincing Ontario residents that new taxes will bring meaningful, timely improvements to their travel experience. Polls and community meetings suggest that everyone—including the business community—accepts the need for greater transit spending, but the preferred source is often “anyone but me.”

The new taxes will place varying burdens on different groups, but these will be eventually offset by the transfer of personal expenses (eliminating a second or third car, reducing the time needed to commute) to public ones. That “eventually” is the nub of Metrolinx’s problem. Voters will pay for many years before they benefit from better transit, and those years must see plans and funding survive swings in government policy and economic activity.

With an annual population growth of 100,000, the GTHA will be one million people bigger before most of the Next Wave finishes construction. That’s a million more people who will complain about congestion, but most will drive for want of an alternative. Even the hoped-for changes in land use sought by Metrolinx will take decades to produce a meaningful shift in population and travel patterns across the region, and the network will have to serve the sprawling GTHA as it is built, not as it might exist in a planner’s fantasy.

In its staging plan, Metrolinx must show how improvements will be felt in the near and medium term, not just in a hypothetical future where all of The Big Move is in operation. Savings in travel time and reductions in congestion must be calculated and demonstrated for the intermediate stages when only parts of the plan are finished. Good results will beget support for more transit projects, but the government—whatever its party—must have the will to stay with the plan rather than amending it to suit electoral needs.

This is a very large, some would say impossible, expectation. In the short term, the government must survive long enough to implement the new taxes and push enough projects out the door to establish momentum for transit expansion. Even a political optimist will see this as difficult, but with good will and continued strong support from senior figures at Queen’s Park it remains possible.

The pessimistic view—more stalemates, little or no expansion, a further relegation of transit to a distant secondary role—does not bear consideration.